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Prejudgment interest should be awarded in maritime collision cases, subject to a limited exception for "peculiar" or "exceptional" circumstances.
Respondent owner and insurers of a ship brought an action in United States District Court against petitioner city to recover for damage sustained by the ship, which, while berthed in a slip owned by the city, broke loose from its moorings during a severe storm, battered against the headwall of the slip, took on water, and sank. The city denied fault and brought a counterclaim for damage to its dock. Both parties were found to be at fault, and, in an interlocutory appeal, the United States Court of Appeals for the Seventh Circuit apportioned liability two-thirds to the ship's owner and one-third to the city and remanded to the District Court. The parties then entered into a partial settlement fixing the amount of damages to the owner and insurers, who, after entry and satisfaction of a partial judgment, sought prejudgment interest of over $5.3 million, which was about three times as much as the amount of damages. The District Court denied prejudgment interest, holding that the genuine dispute over liability and the finding of mutual fault, with the owner bearing the most responsibility, constituted special circumstances justifying a departure from the general rule that prejudgment interest is awarded in admiralty cases. The Court of Appeals reversed, holding that in light of the United States Supreme Court's decision in United States v Reliable Transfer Co. (1975) 421 US 397, 44 L Ed 2d 251, 95 S Ct 1708--in which the former divided damages rule of maritime collisions was replaced with comparative fault--mutual fault did not provide a basis for denying prejudgment interest. The Court of Appeals further rejected a balancing of the equities test as a method of deciding whether to allow prejudgment interest. Respondent sought a writ of certiorari.
Did mutual fault provide a basis for denying a prejudgment interest?
The Court held that neither a good-faith dispute over liability nor the existence of mutual fault justified the denial of prejudgment interest, because the history of admiralty cases has established a general rule that prejudgment interest should be awarded in maritime collision cases, subject to a limited exception for "peculiar" or "exceptional" circumstances. According to the Court, the existence of a legitimate difference of opinion on the issue of liability was not an extraordinary circumstance that can justify denial of prejudgment interest, but was merely a characteristic of most ordinary lawsuits. Moreover, the Court held that the magnitude of a party's fault was not a peculiar feature of a case in which mutual fault has been found, because any seeming inequity in awarding a large sum in prejudgment interest against a relatively innocent party was illusory where the relative fault of the parties has already been taken into consideration in calculating the amount of loss for which each of the parties was responsible. The Court concluded that where apportionment of liability was allowed, the denial of prejudgment interest on the basis of mutual fault would seem to penalize a party twice for the same mistake.